Knowledge Base

Tuesday, April 24, 2012

Simply put, panflation refers to the devaluation of everything. Stay with me here. I'm going to make some specific points that relate to your everyday life. Then I'll bring it home with some very specific references to the pharmacy benefit management industry. Panflation is influencing plan sponsor behavior.

Take the rarely reported issue of "name inflation." There was a time when a platinum credit card meant something. You were someone who always paid bills on time, made a bit more money then the average consumer and had proven it over time. It made you feel special. That you were being rewarded for your diligence. Now, even if one has bad credit he/she can qualify for a platinum credit card. The exclusivity of the platinum credit card has been devalued, but some consumers have yet to recognize this trend. The travel industry is notorious for such hyperbole.

Many hotels no longer offer standard rooms, but instead offer deluxe rooms. How many times have you booked a superior or deluxe room at a hotel only to be disappointed upon check-in? You walk into the hotel room and the view is of a brick wall. There is hair in the sink and the room smells like cigarette smoke. Webster's dictionary clearly states that superior means, "above the average in excellence or of higher grade and quality." Inflating terms is a tool the travel industry utilizes to lure unsuspecting customers into making a purchasing decision. The travel industry is not the only participant in this plague.

Next, let's look at the rarely reported problem of "title inflation." It seems as though everyone today is an expert, consultant or specialist. When confronted with an important decision most of us tend to rely on these so called experts to help guide us through difficult processes. Sometimes we rely too heavily on people based solely upon a title. In most professions, excluding the obvious like a physician or lawyer, there is no special training required in order to be labeled as an expert or consultant. The PBM industry is notorious for this sort of title inflation.

I recently spoke with a benefit consultant from a reputable consulting company not to long ago. Our business together involved a client of hers seeking to reduce prescription drug expenses. Upon conclusion of our re-pricing analysis the results were presented and the savings substantial. She proceeded to ask,"how am I able to determine if a PBM is fully transparent?"

When she posed this question I was both befuddled and disturbed at the same time. Her client is relatively large at almost 60,000 scripts per year and was grossly overpaying for its pharmacy benefit. They are relying on you [firm] to protect them, but you can't even though you're an "expert."

Plan sponsors must make sure to have a basic understanding of pharmacy benefit management. It takes some time, but not much. Participate in webinars and read a blog or two for the most recent industry best practices. Then hold your PBM and its employees accountable by testing them. If they don't have the requisite knowledge why are you retaining them? In the healthcare industry, digging a bit deeper than all the hyperbole being offered on the surface may very well save your company quite a bit of money and time.

Monday, April 16, 2012

All too often, employees are forced to make important choices that can affect their family’s health and health-related financial security. Making these decisions can be stressful and confusing; especially when a family member is ill or when considerable medical expenses are involved.

That’s why many insurance companies now provide treatment cost estimators which provide an easy way to see how much certain procedures and services will cost before a visit to a provider. Armed with this information, employees can make cost effective choices and more informed decisions.

Knowing the costs upfront is important due to their responsibility for paying a portion of their health care costs. And it’s helpful for budgeting aspects of their health benefits and health insurance plans, such as health savings accounts and flexible spending accounts, or for seeing how quickly they may reach their deductible and coinsurance limits.

Employees will need to create a login to their insurance company plan to access these tools. Also, it is important to note that some carriers’ sites display rates billed by the providers and others display the contracted, negotiated rates for in-network providers.

As of this posting, Medical Mutual, Aetna, and United HealthCare use the negotiated rates in their illustrations. However, Anthem uses only the rates billed by the provider, which may not provide an accurate picture to employees about their actual costs.

PPACA: What Will the Supreme Court Decide?

In late March the Supreme Court took the somewhat unusual step of setting aside three days on its calendar just to hear the various aspects of the Constitutional challenge to the Patient Protection And Affordable Care Act. The schedule affirms the universal expectation that the court will issue a ruling on the healthcare law in June, at the height of the 2012 campaign. The Supreme Court sessions began with one hour of arguments on whether it can reach a decision on the reform law before 2014.

There is a possibility that a separate federal law will prevent the courts from ruling until the law’s individual mandate has taken effect. The justices then heard two hours of arguments on the core question of whether the mandate is unconstitutional. And, finally, the court heard two and half hours of arguments on two issues: how much, if any, of the law’s other provisions can be upheld if the mandate is unconstitutional, and whether the health law’s Medicaid expansion is constitutional. There hasn’t been another case in recent memory that’s been argued on this kind of schedule. It no doubt reflects the Court’s own recognition of the complexity and importance of the issues involved.

SBC: Summary of Benefits and Coverage

The Departments of Health and Human Services, Labor, and Treasury, have issued the final regulations for the Summary of Benefits and Coverage. To help consumers better understand and compare health plans, insurers and group health plans are required to provide a new, uniform way to show benefits and define health care industry terms. The effective date for providing the SBC begins on September 23, 2012. Of course, the Supreme Court decision could affect this requirement.

The Signed Waiver: Important Protection

Most employers have some people in their workforce that do not need or want benefits for various reasons. Much of the time it is because they are covered by their spouse’s health insurance plan; although, other reasons do exist.

If your company has employees that are eligible to participate in the health insurance plan but have chosen not to for any reason, we suggest that you have them sign a “waiver of participation” form. This form is generally provided by your insurance carrier and normally is required to be completed by non-participating employees.

The signed waiver is your only protection against allegations that you did not offer coverage to an employee. The question of whether or not you allowed the employee to participate can easily be proven if you have a waiver that has been signed by the employee. Of course, this is not an allegation that comes up often. When it does, it is usually because there are outstanding claims and no insurance to cover them. This is a liability that most employers are not interested in self-insuring. A properly signed waiver is the best protection against this happening to your company.

Tuesday, April 3, 2012

For the record I was an opponent of the Express Scripts (ESI) and Medco merger. The FTC, in a 3 to 1 vote, has determined that the merger doesn't violate antitrust laws thus permitting it to move forward. The two behemoth PBMs quickly completed the merger today. Let's examine the impact on stakeholders in the U.S. pharmaceutical supply chain: manufacturers, pharmacies, payors, and patients.

From Wikipedia,"A true duopoly (from Greek duo δύο (two) + polein πωλεῖν (to sell)) is a specific type of oligopoly where only two producers exist in one market. In reality, this definition is generally used where only two firms have dominant control over a market. In the field of industrial organization, it is the most commonly studied form of oligopoly due to its simplicity."The merger of ESI and Medco essentially creates a duopoly. Combined with CVS/Caremark, the nation's second largest PBM, the two companies account for 73% of all prescriptions dispensed in the USA. Pharmaceutical manufacturers eager to place expensive brand prescription medications onto PBM formularies will experience more pressure from ESI to increase rebates and lower prices.

If you've read all my previous posts then you know rebates from manufacturers to PBMs take on many names and sometimes aren't even classified as rebates, but instead as reimbursements. The point is that any money (rebate) paid out by a manufacturer to a PBM is due solely to the PBM's huge patient database therefore100% of those rebates should go back to the payors [whom fill these databases with patient lives]. I'll discuss this more in a bit.

Some pharmacies, like manufacturers, will experience increased pricing pressure from the largest PBM in the USA. Prior to the approved merger ESI had already flexed its muscle with Walgreen's. The two companies weren't able to agree on reimbursement rates. ESI proposed to lower rates. Walgreen's was resistant to adhere to ESI's pricing pressure at least until now. I expect Walgreen's has reluctantly swallowed their pride and is currently on the phone to ESI begging for the deal it initially shot down. Good luck with that!

Chain pharmcies will not be the only class of trade to take a hit in this deal. Independent pharmacies, including mail-order, specialty and retail, will see EBITDA decline. Pharmacies are reimbursed, by PBMs, based on a pre-determined pricing contract. I can tell you as an independent pharmacy owner these reimbursements are too small and will get smaller.

I'm not a greedy business owner. I run a tight ship and focus unforgivingly on waste elimination. I expect only a fair return. Because of my experience working for Eli Lilly and Co. I know how expensive it is to bring a new drug to market and just as important how little it costs, relatively speaking, to manufacture the drug after FDA approval. A pharmaceutical manufacturer can easily realize an 80% gross margin.

For example, a 90-day supply of Actos cost us approximately $530.00. We consider ourselves fortunate if a PBM reimburses us $550.00 (plus a $25 patient co-pay) for dispensing this medication to a plan participant. In other words, don't shoot the messenger! The next time you have a complaint about rising drug costs it's not your pharmacist's doing.

Nothing pains me more when I read about the CEO of ESI, George Paz, expressing how much patients will benefit from this merger. Really? Employers, federal and state governments capitalize the U.S. pharmaceutical supply chain not patients. The health insurance marketplace, unlike most marketplaces, is one in which the end user or beneficiary doesn't carry most of the financial burden.

Payors or plan sponsors have to "get smart" about their pharmacy benefit. Now more than ever the focus must be put on 100% transparency. Buyer beware, there is not a PBM on the planet that won't say it's 100% transparent. Transparency is not created equally.

With the help of a really good consultant, define transparency internally. Then hold potential suitors accountable too it and don't waiver a single inch. If the relationship falls short of your definition of 100% "true" transparency then find a new partner. The very large and smart payors may very well benefit from this merger.

A very large and smart employer (25,000+ lives) may experience a rebate increase while drug costs could decline. This is true only in the case ESI passes all the savings on to its very large customers. Smaller and less knowledgeable payors might see no change at all or worse see an increase and basically be told take it or leave it. Be sure to hire a brilliant team of consultants to work on your behalf and help determine which side of the fence you're on.